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Benefits of Rent Sharing in Dynamic Resource Games
In: Dynamic games and applications: DGA, Band 14, Heft 1, S. 20-32
ISSN: 2153-0793
AbstractNgo Van Long's classic paper on the risk of expropriation of natural resources published in a 1975 issue of the Journal of Economic Theory was an instant classic, which spawned a huge literature. Here I pay tribute to this wonderful brilliant yet modest scholar by briefly reviewing his contribution and then sketching how his insights can be used to analyse dynamic conflict over natural resources both as expropriation game and as a differential game on which Long has published extensively too. We discuss three results. First, if an incumbent faces a threat of a rival faction, extraction is more voracious if the factions do not share rents equally. Second, never-ending political conflict cycles are more inefficient if constitutional cohesiveness or rent sharing is strong and political instability is high. Third, resource wars are more intense if rent sharing is weak, reserves of resources are high, the wage is low, and elections occur less frequently.
CLIMATE POLICIES: CHALLENGES, OBSTACLES AND TOOLS
In: National Institute economic review: journal of the National Institute of Economic and Social Research, Band 258, S. 12-27
ISSN: 1741-3036
A four-pronged approach to climate policy is presented consisting of carbon pricing, subsidies for renewable energies, transformative green investments and climate finance and engendering flywheel effects. Then, a variety of societal and political challenges and obstacles faced by such a climate policy and what can be done to overcome them are discussed. These range from stranded assets, the very long time scales needed to adapt and deal with global warming, intergenerational conflict, international free-rider problems, carbon leakage, green paradoxes, policy failure and capture, adverse income distributional effects and spatial scarcity to the problem of climate deniers and sceptics. The paper also discusses the various tools that are needed for the analysis of both ideal and workable climate policies, and the need to collaborate with complexity scholars, political scientists, sociologists and psychologists.
Race to burn the last ton of carbon and the risk of stranded assets
In: European Journal of Political Economy, Band 64, S. 101915
Fossil fuel producers under threat
In: Oxford review of economic policy, Band 32, Heft 2, S. 206-222
ISSN: 1460-2121
Macroeconomics of sustainability transitions: Second-best climate policy, Green Paradox, and renewables subsidies
In: Environmental innovation and societal transitions, Band 1, Heft 1, S. 130-134
ISSN: 2210-4224
Fiscal policy and Dutch disease
In: International economics and economic policy, Band 8, Heft 2, S. 121-138
ISSN: 1612-4812
Fiscal policy and Dutch disease
In this paper we revisit the Dutch disease paying particular attention to the role of specific factors of production and capital stock dynamics. The main insight is that if the natural resource rich windfall is substantial but not large enough for the country to become a rentier, capital goods must be produced at home and adjustment to natural resource windfall takes time. It takes time to build this home-grown capital. Specific factors are crucial to explain the dynamic responses of the real exchange rate, capital intensities and wages in response to a natural resource windfall. If a country is small and the windfall is large, it may be able to import capital and migrant labour in which case the Dutch disease can be avoided.
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Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights: A Puzzle
In: Environmental and resource economics, Band 48, Heft 1, S. 105-128
ISSN: 1573-1502
Natural resources: Curse or blessing?
Are natural resources a 'curse' or a 'blessing'? The empirical evidence suggests either outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources. These include that a resource bonanza induces appreciation of the real exchange rate, deindustrialization and bad growth prospects, and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law, corruption, presidential democracies, and underdeveloped financial systems. Another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces corruption especially in non-democratic countries, and keeps in place bad policies. Finally, resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. The survey also offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.
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Aggressive oil extraction and precautionary saving: Coping with volatility
The effects of stochastic oil demand on optimal oil extraction paths and tax, spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic. Without prudence, optimal oil extraction is governed by the Hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle. Volatile oil demand brings forward oil extraction and induces a bigger government surplus. With prudence, the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward, especially if it has substantial monopoly power on the oil market, gives high priority to the public spending target, is very prudent, and future oil demand has high variance. Uncertain economic prospects induce even higher precautionary saving and, if non-oil revenue shocks and oil revenue shocks are positively correlated, even more aggressive oil extraction. In contrast, prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving, but less so if uncertainty about reserves and oil demand are positively correlated.
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Higher education reform and the renewed Lisbon strategy: role of member states and the European Commission
In: Subsidiarity and economic reform in Europe, S. 65-96
Prudent budgetary policy: political economy of precautionary taxation
The theory of tax smoothing and determination of public debt with uncertain future national income is extended for prudence. A prudent government deliberately underestimates future national income and the tax base, especially if the variance and persistence of shocks hitting the tax base are large and the tax rate and the unemployment benefit are large. As a precaution the tax rate is set higher and the level of public spending lower. As a result, as income and the tax base turn out to be bigger than budgeted, the minister of finance enjoys windfall revenues and is able to gradually reduce debt and debt service over time. This permits, depending on political preferences, either gradual cuts in the tax rate, gradual increases in government spending or a combination of both. It is easy to allow for government assets as well. Finally, political economy justifications are offered of why it is desirable to appoint a strong and pessimistic minister of finance. In particular, we show that prudence is able to offset the intertemporal spending, tax and debt biases resulting from the common-pool distortions. If the minister of finance and the prime minister are given as many voting rights as the spending ministers combined, the intratemporal common-pool distortions of an excessively large public sector are eliminated as well. A strong and pessimistic minister of finance can thus control the impatient profligacy of squabbling spending ministers. However, if voters care about outcomes on election eve, prudence may be abused for short-run electoral gains. Opportunistic manipulation of election results, however, also dampens the intertemporal common-pool distortions.
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Genuine Savings and the Voracity Effect
Many resource-rich countries have negative genuine saving rates, so deplete their exhaustible natural resource wealth faster than they build up wealth in other assets. This phenomenon is stronger in more fractionalized countries with poor legal systems. We explain this by a power struggle about the control of natural resources. Competing fractions in society thus have a private stock of financial assets and a common stock of natural resources. We solve a dynamic commonpool problem and obtain political economy variants of the Hotelling rule for resource depletion and the Hartwick saving rule necessary to sustain constant consumption in an economy with exhaustible natural resources. Resource depletion is faster than demanded by the Hotelling rule. As a result, the country has negative genuine saving rates and is running down its national wealth. The country saves more in financial assets than the current natural resource rents. Still, the erosion of natural wealth exceeds the accumulation of financial assets. Even though the power struggle boosts output, consumption is sub-optimally low. The highlighted political distortions are larger if the country is more fractionalized.
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Prudent Budgetary Policy Political Economy of Precautionary Taxation
The theory of tax smoothing and determination of public debt with uncertain future national income is extended for prudence. A prudent government deliberately underestimates future national income and the tax base, especially if the variance and persistence of shocks hitting the tax base are large and the tax rate and the unemployment benefit are large. As a precaution the tax rate is set higher and the level of public spending lower. As a result, as income and the tax base turn out to be bigger than budgeted, the minister of finance enjoys windfall revenues and is able to gradually reduce debt and debt service over time. This permits, depending on political preferences, either gradual cuts in the tax rate, gradual increases in government spending or a combination of both. It is easy to allow for government assets as well. Finally, political economy justifications are offered of why it is desirable to appoint a strong and pessimistic minister of finance. In particular, we show that prudence is able to offset the intertemporal spending, tax and debt biases resulting from the common-pool distortions. If the minister of finance and the prime minister are given as many voting rights as the spending ministers combined, the intratemporal common-pool distortions of an excessively large public sector are eliminated as well. A strong and pessimistic minister of finance can thus control the impatient profligacy of squabbling spending ministers. However, if voters care about outcomes on election eve, prudence may be abused for short-run electoral gains. Opportunistic manipulation of election results, however, also dampens the intertemporal common-pool distortions.
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